A Northern California hedge fund manager faces one count of wire fraud for improperly diverting more than $12 million, but that charge will be dismissed after three years provided he fulfills an agreement with U.S. prosecutors, according to a court filing.

Lawrence Goldfarb, of Baystar Capital Management in Larkspur, California, also settled civil charges for transferring the money to other entities he controlled, securities regulators announced on Tuesday.

Attorneys for Goldfarb did not respond to repeated requests for comment.

Goldfarb allegedly redirected some money from the Baystar Capital II fund, which was worth more than $100 million at its peak, the U.S. Securities and Exchange Commission said in a court filing on Tuesday.

The diverted funds came from a side pocket investment, which is commonly used by hedge funds to separate illiquid assets from the rest of the fund's investments, the SEC filing said.

Instead of returning money to fund investors, Goldfarb diverted it to several entities he controlled, including a separate real estate fund, a San Francisco record company and various other private companies.

Along with Goldfarb, the company Baystar Capital Management also faces a wire fraud count. But a deferred prosecution with the U.S. Attorney's Office in San Francisco provides for the criminal charge to be dismissed after three years -- provided Goldfarb makes full restitution and cooperates with the government.

A spokesman for the U.S. attorney's office in San Francisco declined to comment.

Goldfarb agreed to pay more than $14 million to settle the SEC case, including nearly $2 million in prejudgment interest and a $130,000 penalty.

He will also be barred from associating with any investment adviser or broker for three years, according to the deferred prosecution agreement.

In addition to managing Baystar, Goldfarb also ran LRG Capital Group, which promotes itself as a global investment, banking and advisory boutique, the SEC said in its filing.

According to LRG's website, Goldfarb once worked at Credit Suisse as a partner and director of mergers and acquisitions. Before that, he was an attorney at law firms including Skadden, Arps, Slate, Meagher & Flom, the website says.

A Credit Suisse representative had no comment, and Skadden spokesman Brendan Intindola said Goldfarb worked as an associate at the firm over 20 years ago.

(Reporting by Dan Levine; Editing by Maureen Bavdek, Matthew Lewis and Richard Chang)

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